Saturday, December 15, 2012

Schwab Trading Down, Assets Up in November

Charles Schwab (NYSE: SCHW  ) saw lower daily trading volume, but an increase in total assets to a new record in November, according to the company's monthly activity report. Daily average trades were down by 2% on a month-over-month basis, and essentially flat from the November 2011 level.

However, total client assets reached a new high, to $1.92 trillion, at the end of November. This was 15% higher year over year, and a 1% improvement over October's figure.

Net new assets coming in during the month amounted to over $16 billion.

The report quoted company CFO Joe Martinettto as saying "broader signs of an improving economy, along with our ongoing investment in our clients, are helping to drive strong asset growth in our business."

He added that, thanks to the growth in its client base, Schwab was on track to record 25% year-on-year net profit growth, and revenue improvement of 8% in its present 4Q.

Year-End Review: Simple Ways to Cut Your Budget Now

2013 is right around the corner, and coming with it is the looming threat of the fiscal cliff. If a deal isn't reached between now and then, we'll all wake up on Jan. 1 with higher tax rates and lower government spending levels. One way or another, you'll likely have a bit less cash to spend, beginning with your first check in January.

That means the next few weeks would be a good time to figure out where and how to effectively cut back your spending to compensate.

Where Does Your Money Go?

The first step in trimming your personal budget is to understand where your money goes. It's a lot easier to cut your costs when you know what the biggest drains on your cash are. Then you can make plans to address those specific spending areas.

If you use personal finance software like Quicken, built-in reports will let you know where your cash is going. Alternatively, if you run most of your spending through a credit card, that card's website might have spending graphs that you can use to see where your money winds up.

Everyone's situation is different, but depending on your circumstances, your report might wind up looking a bit like this:

Each of these expenses can be adjusted to some extent. It's just a question of whether the benefits are worth the cost and effort to make the changes.

How to Slim Down Those Big Pie Slices

Taxes: The easiest way to pay lower taxes is to earn less income that gets subject to taxation. That doesn't necessarily mean you need to accept a pay cut, but rather that you should look for ways to reduce the tax impact of your earnings.

One of the easiest ways for ordinary wage earners to shelter income from taxes is to contribute to a traditional 401(k) plan. In 2013, most employees will be able to contribute up to $17,500 in their 401(k)s, with those ages 50 and up able to add $5,500 more.

Groceries: If your grocery list is heavy on prepackaged or other forms of convenience foods, you can save a bundle by buying the raw ingredients, and assembling and cooking your meals from scratch -- or something a few steps closer to it. Even simple steps like shopping with a list -- and sticking to it -- or setting a specific weekly food budget can result in significant cost-cutting.

Mortgage Interest: Mortgage rates are near all-time lows. If you have a mortgage and are able to refinance it, taking advantage of today's incredibly low rates can potentially knock thousands of dollars off your annual interest payment.

Household (Maintenance): Other than the medical expenses slice of the pie, this is the big slice that probably has the biggest variability and the biggest "surprise" element. Appliances wear out, basements leak, and roofs need repairing. Don't put off regular maintenance. Spending a small amount up front to fix small problems saves you from shelling out big dollars for big-ticket fixes. Another way to control the impact of maintenance costs is to regularly set aside money to cover repairs. Having cash on hand both improves your bargaining power with vendors and keeps you from having to pay interest on top of the costs of repairs.

Auto: Consider carpooling, telecommuting, and/or using mass transit instead of driving alone. That not only can save you direct commuting costs like gas, parking and tolls, but it can also help reduce the wear and tear on your car, which will save money you on maintenance and repairs.

Insurance: By shopping around every time your insurance policies are up for renewal, you can guarantee that you're getting the best rates. In addition, consider taking higher deductibles and saving the premium differences versus what you were charged on the old deductible, in case you ever do need to use the insurance. Generally speaking, you'll recoup the increased deductible within a few years of premium savings and be ahead money-wise if you ever do need to use it.

Utilities: Energy and water efficiency is the name of the game here. Low-flow toilets, showers, and sinks can keep your water bills down, and good insulation, compact florescent lighting, and a programmable thermostat can keep the electric and gas bills in check.

Education: Public schools often have fee waivers for those who truly can't afford an otherwise mandatory charge. And remember, there's no shame in passing on the myriad of fundraisers that schools have, especially if you're forced to choose between the fundraiser and your electric bill.

Charity: Charity is a completely voluntary expense. If you can't afford to give as much next year but still want to contribute to your favorite causes, ask what volunteer opportunities are available. Plenty of solid charities would benefit greatly from a donation of your time and talent.

Medical: The key levers you have as far as saving on medical expenses are things like asking for generic prescriptions, making sure you only see in-network physicians, and making use of lower-cost options like in-store clinics for basic care needs.

As scary as the 2013 fiscal cliff may seem, remember that you probably have some sort of wiggle room in every major expense category you have. By planning now, you can make the right choices for you and your family that will enable you to best cope with whatever financially comes your way next month.

Related Articles
  • How Household Budgeting Can Keep Everyone Happy
  • America Has Lower Household Debt, but Higher Personal Debt
  • The Notion That You'll Spend Less in Retirement Is Totally Wrong

Chuck Saletta is a contributing writer to The Motley Fool.

Juniper Pays $180M for Soft-Networking Startup Contrail

Shares of Juniper Networks (JNPR) are down 10 cents, or half a percent, at $18.87 in late trading after the company said in a Securities & Exchange Commission filing that it has agreed to pay $176 million in cash and stock for Santa Clara, California-based Contrail Systems, including $57.5 million in cash and 5.82 million shares of Juniper stock.

Contrail, founded this year, is developing products for so-called software-defined networking, which some on the Street have hypothesized could be a threat to traditional routing and switching equipment sales by Juniper and Cisco Systems (CSCO) and other box makers. More information on the company can be found here.

Juniper said in the filing that “Juniper gains SDN technology that augments our portfolio of products and services.”

“As a strategic investor earlier this year, we recognized the inherent advantages of Contrail�s architectural approach and we are excited to take this next step to acquire and combine Contrail into our team.”

Friday, December 14, 2012

How to Make a Smart Investment Decision

It goes without saying that, the purpose for investing is to get returns from the money that one puts into a mutual funds pool. For that reason therefore, every investor is out looking for what he may term as, a smart investment. While the word smart is an acronym for some valuable characteristics, not many people have internalized it in as far as their money is concerned.

Putting money in a scheme is not something to be taken for granted. One needs to have a specific reason for doing so. The reason could be that one is saving for his children education, or saving to buy a home in future. With such goals in mind, one is able to choose the right kind of security. You therefore need to carry out a market survey to achieve this goal.

When you know why you are putting your money in a scheme, you are then able to measure the kind of return to expect. This is to say that once you know which type of security to buy, you are in a position to calculate the rate of return to expect. In most cases this will be determined by the market trends, but if you check out the performance of that security in the past, you will get a general idea of what to expect.

As you venture into the stock market, beware that there are many types of securities that you can buy. One way to determine which one to go for and which one to avoid is by comparing the risk versus the return. They both tend to move towards the same direction in that, as one increases the other one does too. This way, you will be able to determine whether the scheme is achievable or not.

Peter Gitundu Creates Interesting And Thought Provoking Content on Investment. For More Information, Read More Of His Articles Here SMALL BUSINESS MENTOR.

Is Ulta the Ultimate Growth Stock?

The following video is from Friday's Motley Fool Money roundtable discussion with host Chris Hill and analysts Joe Magyer, James Early, and Ron Gross. In this segment, the analysts discuss how CNBC's Jim Cramer recently picked Ulta Salon (NASDAQ: ULTA  ) as the "ultimate growth stock." Our analysts take a look at the strong numbers of this stock that may not have appeared on many investors' radars, and discuss why it may have a lot of growth potential ahead.

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in our special report. Uncovering these top picks is free today; just click here to read more.

This Market Indicator Only Happens During Election Season

Politics may not be something traders want to be concerned with, but it is a factor they should be aware of. Political pundits expect this to be a close election, perhaps similar to the nail-biter we saw in 2000. That year, the SPDR Dow Jones Industrial Average (NYSE: DIA) fell more than 15% between the beginning of September and the election.

Other election years have also seen declines over this time frame, and traders should be aware that a pullback could develop at any time based on election history, as shown by an indicator developed from that history. This indicator is nonpartisan and applies to presidents of either party.

The Presidential Cycle is widely followed because there is some logic to support the idea that stocks will move based on how much time there is before an election. Under this theory, we tend to see the worst stock market returns in any president's first two years as they take unpopular actions like increasing taxes or cutting spending. By acting early, it is possible that traders (and voters) will forget about the pain they feel if the actions lead to longer-term growth.

The best year for the stock market is usually the third year of the term, when the actions taken in the first years are leading to improvements in the economy. The fourth year, an election year, is marked by uncertainty and has historically been the second best year of the cycle, but the gains are not distributed evenly throughout the year.

To create an indicator based on this theory, we can average the returns for each year of the cycle and plot that average performance on a chart. For example, 2012 would be the fourth year of the cycle, so we would average 2008, 2004, 2000 and so on, using data as far back as we'd like. This will allow us to see what the average year looks like.

For the Presidential Cycle, I start with data from 1936, which is the year the 20th Amendment moved the start date of the president's term to January from March. Prior to 1936, the extended delay from the November election to the March inauguration could have an impact on policy and economic actions, changing the pattern of the cycle. Ignoring that earlier time frame focuses the indicator on conditions more like what we face now rather than using data that is irrelevant.

Between now and the election, the cycle forecasts a lower stock market using data for the Dow Jones Industrial Average (DJIA). The daily chart of that index is shown below to offer as much detail as possible and use the maximum amount of data that is available. ETFs have much shorter trading histories and many of the newer ETFs will have a four-year cycle performance that is heavily influenced by the 2008 bear market.

That 2008 bear market contributes to the pattern seen in the cycle of PowerShares QQQ (Nasdaq: QQQ), an ETF that tracks the high-tech stocks in the Nasdaq 100 index. According to the Presidential Cycle, a stock market decline into electionday should be expected in QQQ and we could see the ETF struggle through the first quarter. This ETF has declined significantly in the first three months of every president's first year since 1993.

Similar patterns are seen in other stock market indexes. The Presidential Cycle is not an indicator that should be used as a stand-alone trading strategy.

April Job Growth Improves as Jobless Rate Ticks Up

This morning’s update on non-farm payrolls for April brings some good news. Job growth accelerated last month to a net rise of 268,000 (seasonally adjusted) vs. March’s 231,000 gain. In fact, April’s pop was the best monthly increase in payrolls since the recession ended.

The news is all the more satisfying in the wake of Wednesday’s weak ADP jobs report and yesterday’s rising trend in jobless claims. Economists were surprised as well: the consensus forecast called for a gain of 200,000, according to

Click to enlarge

Jim O’Sullivan, chief economist at MF Global, opines that there's a fair amount of growth momentum to consider. “The recovery has progressed into the self-propelling stage, where it’s less vulnerable to short-term swings in sentiment,” he tells Bloomberg.

Perhaps, but we should be cautious with today’s jobs report for several reasons. One is that most of the surprisingly good news comes via a sharp revival in retail employment. In March, retail jobs suffered a rare retreat, dropping by a seasonally adjusted 3,200 on a net basis. The dip was temporary, however, and last month the sector added more than 57,000 positions - the biggest monthly gain by far in more than three years.

Retail jobs are certainly welcome - indeed, any job growth is good news these days. But it’s misleading to think that retail employment will bail us out at this pace for an extended period. In addition, one might wonder if retail jobs offer the same kick for economic growth vs. employment gains in other sectors, such as housing and manufacturing.

In any case, let’s not look at the gift horse in the mouth. Meantime, let’s also note that despite today’s jump in job growth, the unemployment rate ticked back up to 9.0% for April.

There's also the much-weaker household employment survey to consider. The methodology for this series is different than the more widely monitored establishment survey that's noted above. Indeed, as we discussed earlier this year, the household survey employment numbers are quite a bit more volatile vs. their counterparts derived from the establishment report. Accordingly, the two series can and do differ from month to month by more than trivial amounts. Nonetheless, no one will take comfort from learning that civilian employment via the household data dropped by a hefty 190,000 last month after posting a 291,000 net gain in March.

It seems that there's still plenty to worry about. In other words, not much has changed. The economy is still growing and the labor market is recovering, but the pace of growth isn’t enough to bring down the unemployment rate quickly. Today’s payrolls report offers another reason for thinking that the risk of a new recession is still relatively low (at least according to the establishment survey). Yet the threat of a slowing recovery from an already sluggish pace can’t be ruled out.

Retailers Push Sales Through Facebook – And Succeed

Everyday millions of people catch up with a buddy on Facebook, play games or just share something that�s own their minds with the world.� So why not do a little shopping while you�re there?

That�s what GameStop Corp. (NYSE: GME), Express, Inc. (NYSE: EXPR) and J.C. Penney Company, Inc. (NYSE: JCP) are hoping. The video game and apparel retailers are among the latest vendors to join the Facebook family, setting up online storefronts on the world�s most popular social network in hopes of boosting sales.

Express Inc. joined the Facebook family about two weeks ago. GameStop did it last month and J.C. Penney came on board just prior to the Christmas holidays.� All three have made most, if not all, of their inventory available for purchase from their Facebook page and some social media gurus think it�s just a matter of time before traditional retailer websites become obsolete.

“Expecting people to come to your website is expecting them to make an extra effort,” Janet Fouts, a social media coach told USA Today. “They’re already on Facebook.”

Whether or not that happens, retailers can�t deny that they are not likely to ever have as much access to consumers through their websites on a daily basis as they could through Facebook. The social network, which is toying with an IPO, has in the neighborhood of 500 million members, with roughly 250 million of them on the site every day.� Collectively, Facebook visitors spend about 700 billion minutes on the network and the average user has about 130 friends they can share information about retailers� products with.

Marketed properly, a retailer�s Facebook page could be perfect place to target specific demographics and drum up sales on items before they even reach their warehouse. The page could also be used to unload an overstock of merchandise fairly quickly with the right sales incentive.

Because shoppers who access retailer�s stores through Facebook never have to leave the social network, they could easily get an opinion on an outfit or product from their friends before they buy it.� If they find a good deal, they could easily let their friends know about it.

But dissatisfied customers who have had bad shopping experiences could also share their miserable experiences, opening a retailer up to unprecedented consumer scrutiny and criticism that it may not be able to control or respond to quickly enough before it does serious damage.

Whatever happens, one might say that in the age of the social network and retail sales, it would seem that good customer service is about to take on a whole new meaning.

As of this writing, Cynthia Wilson did not own a position in any of the stocks named here.

Thursday, December 13, 2012

Steps to Investing Foolishly, #13 of 13: Make Friends and Influence Fools

In honor of Worldwide Invest Better Day (WWIBD), we at The Motley Fool are recapping our "13 Steps to Investing Foolishly" -- steps you can follow to become a better, more Foolish investor.

In the following video, Chief Investment Officer Andy Cross explains the importance of Step #13: Make Friends and Influence Fools. This final step is about tapping into the collective brainpower of tens of thousands of fellow Fools as you journey on into the world of investing.

We all understand the power of community and connections, and chances are good that you're already a member of one of the web's many social or professional networking sites, the most popular being Facebook (Nasdaq: FB  ) , of course, which recently surpassed 1 billion users. Facebook is famous for more than just its gigantic user base, though. Since going public in May 2012, the company has become known as the worst IPO in history, plagued by one problem after another in a downward spiral of epic proportions.

Whether you're a fan of Facebook or not, the takeaway here is that not all communities are created equal, and at, you'll find a thriving population of smart, informed, and helpful individuals who have already discovered that, when it comes to investing, there's no benefit (or fun) in settling for solitude. Check out the video below for a rundown on everything the Fool Community has to offer, from discussion boards to our specially-engineered CAPS database. It's all free, friendly, and Foolish, and we hope to see you there.

Click the big green button below to join the thousands of people celebrating Worldwide Invest Better Day on September 25.

Top Stocks For 2012-1-15-13 Stock Report!

Monday August 24, 2009, the leading online marketplace for surplus goods, and a division of Liquidity Services, Inc. (NASDAQ: LQDT), is excited to announce it is donating and installing equipment for the new The Fishing School’s (TFS) state-of-the-art computer lab as part of the life-changing makeover of the school for underserved youth. The Emmy Award-winning reality TV series Extreme Makeover: Home Edition (EMHE) will storm the nation’s capital this week to begin filming its upcoming seventh season and announced today that The Fishing School (TFS), a youth development center located in Northeast Washington, DC, has been selected for an extreme makeover.

TTI Team Telecom International Ltd. (Nasdaq:TTIL), a global supplier of Operations Support Systems (OSS) to communication service providers, announced today that it will release the second quarter 2009 results on August 25, 2009.

Harris Stratex Networks, Inc. (Nasdaq: HSTX), a leading provider of wireless solutions that enable the evolution of next-generation fixed and mobile broadband networks, announced it was recognized by Voice&Data magazine as the top company in India’s WiMAX equipment market at this year’s tenth annual V&D100 Awards. According to Voice&Data’s fiscal year 2008-2009 industry analysis, Harris Stratex led the WiMAX broadband infrastructure sector in India with an estimated 70 percent market share, maintaining its leadership from the previous year. Raj Kumar, Harris Stratex vice president of Asia, received the prestigious award at a ceremony held at ITC Maurya in New Delhi. Telecom Regulatory Authority of India (TRAI) Chairman J. S. Sarma was the chief guest at the event.

YRC Worldwide Inc. (Nasdaq: YRCW), is proud to announce that 57 of its subsidiaries’ professional drivers competed at the 2009 National Truck Driving Championships Aug. 18-22 in Pittsburgh, Pa. YRC, a subsidiary of YRC Worldwide is proud to announce that two of their drivers have captured top awards at this year’s competition.

Adobe Systems Incorporated (Nasdaq:ADBE) today announced the U.S. Marine Corps has selected Adobe(R) Acrobat(R) Connect(TM) Pro as its standard Web conferencing solution. As a tactical battlefield collaboration tool for deployed troops, Acrobat Connect Pro can enable Marines to communicate more effortlessly and securely across locations worldwide.

DemandTec, Inc. (Nasdaq: DMAN), a leading provider of on-demand optimization solutions for retailers and consumer products manufacturers, today announced that the latest release of its software-as-a-service suite has been deployed and is in use by DemandTec customers. The most recent software update delivers new customer insights, enhanced collaboration and operational efficiency as well as broader planning capabilities to DemandTec’s global customer base.

Yahoo Faces 10% Downside Should Ad Rate Declines Continue

Sites like Yahoo (NASDAQ:YHOO) earn money from display ads (banners, skyscrapers) and often measure the health of their ad business based on the amount of ad revenue they generate for each viewed page on their site. Yahoo’s revenue per page view (RPM) has declined over the past few years and there could be a 10% downside to the $21 Trefis estimate for Yahoo’s stock if RPM declines were to persist into the future.

Display Ad Business is 16% of Yahoo

We estimate that Yahoo’s display advertising business constitutes 16% of our estimate for Yahoo’s stock, making it the second most valuable business for Yahoo after search.

30% Decline in Revenue per Page View in 3 Years

Yahoo’s RPM declined nearly 30% from $1.33 per 1,000 page views in 2006 to $0.96 per 1,000 page views in 2009. The display advertising market, however, showed a strong comeback in the last quarter of 2009, saving Yahoo from even greater RPM declines.

2 Reasons Why Revenue per Page View Should Increase

We believe that RPM rates will increase to reach $1.31 per 1,000 page views by the end of the Trefis forecast period due to:

1. Increase in online brand spending by advertisers

Advertisers are increasing their brand marketing on Yahoo sites, with 9 out of 10 advertising categories seeing a rise in online spending during Q4 of 2009. For example, retail, consumer products and telecom advertising categories grew strongly compared to the same period last year.

2. Ad dollars shift from print to online

Yahoo’s RPM is highly dependent on how much money is spent for online advertising. We expect online advertising to continue to take away share from traditional media like print newspapers and magazines as consumers increasingly shift from print to digital media. Such a shift will directly benefit online news and content sites like Yahoo and AOL .

10% Downside to Trefis Estimate if Decline Were to Continue

Despite our forecast, an on-going decline of RPM rates in line with the recent years could results in a $2 (10%) downside to the $21 Trefis price estimate for Yahoo’s stock. You can modify our forecast above to reach $0.5 per 1,000 page views by the end of Trefis forecast period to see the impact on Yahoo’s stock.

Disclosure: No positions.

Biogen Idec Looking to Break Out

While Friday�s market rally may have originated from deeply oversold conditions, the bull virus has spread considerably in the past two weeks to infect a broad swath of stocks.� In fact, 77% of the S&P 500 stocks have now risen above their 50-day moving averages (hat tip Bespoke).

This surge in breadth is yet one more piece of evidence lending credence to the bullish argument.� While the broader market indices are more than a bit extended and in need of some consolidation, there still remain a number of stocks that are forming some alluring setups.

One such stock in the biotech space is Biogen Idec (NASDAQ:BIIB).� The sideways price action has set up a clean high base against the $102.50 resistance level. Volume patterns have also confirmed its bullish disposition, with expanding volume during the last two upswings and diminishing volume during the pullbacks.� If BIIB is able to muster the strength to breach $102.50, it has room to run to the next overhead resistance around $107.50.

With $0.20 to $0.30 bid/ask spreads, BIIB options are somewhat lacking in the liquidity department.� Given this wider spread, I suggest using limit orders and trying to split the spread if you�re inclined to use options.

Purchasing the BIIB Nov 100 Calls or the BIIB Nov 100-105 call option spread (where you would �Buy to Open� the Nov 100 Calls and, at the same time, �Sell to Open� the Nov 105 Calls) are two potential plays for the breakout.

The 100-strike calls are trading in the neighborhood of $8 per share ($800 per contract). If you also sell the 105 calls and initiate a spread, you could pay in the neighborhood of $3 for the trade at current prices.

Keep in mind that buying shares of stock is always a logical alternative when the options are too illiquid.

BIIB is set to report earnings on Oct. 28, so plan accordingly.

Source:� MachTrader

At the time of this writing Tyler Craig had no positions in BIIB.�

Solving Your Debt Problems By Becoming Bankru..

You may think that your debt situation keeps getting worse no matter what you try to improve it. You might think you are running out of options and that declaring bankruptcy may be your only choice. If this is what you are feeling, you should wait to consider what the consequences may be. Filing bankruptcy can leave some very adverse effects on your credit and your ability to obtain financial assistance if you need it.

The expert advice of financial advisers is that bankruptcy should not be used unless it is absolutely necessary. If any lawyers are dealing with occurences like these then they also agree that it is true. If you have a huge amount of high interest credit card debt and can't make your mortgage payments or if your car is about to be repossessed or the electricity is going to be disconnected, and you can't pay any of these bills, you may want to consider bankruptcy.

If these extreme measures must be made to resolve your debt, you need to seriously examine your finances and find how you ended up in this massive debt.

The majority of Americans the main issue is a complete mismanagement of personal finances. They are overspending on their budgets and can't actually clear all their payments in a timely manner, leading to charges and creditors beginning to chase them. Debt can also be the result of unforeseen things in life, such as the loss of employment or illness which leads to high medical bills. If you have suffered the loss of of close family member it can have a devastating effect on your personal finances. Circumstances like the ones just described are the most common types for bankruptcy.

There are a number of consumers who feel that bankruptcy is a magic wand that will take all of their financial problems away. They think that bankruptcy can be used to take away all the debt with no lasting consequences. The bankruptcy laws have been changed to cut down on the people who thought they could wipe out their debt so it is not so easy to qualify for bankruptcy. You have to pass a strict application process and then you have to wait for the judge's decree to give you the debt relief you requested.

A consequence of declaring bankruptcy is that your credit rating will be adversely affected for as long as ten years in most cases. This could be a detriment to you if you wish to seek finance for mortgages or other loans in the future. Lenders will certainly use your credit history to help them determine if you are a suitable loan candidate. For example, if you want to buy a new mortgage a good credit score is a must.

You need to do a lot of research on the options available to you if you believe that the only one is bankruptcy. Financial advisors and bankruptcy lawyers can recommend the best thing for you in your particular circumstances. Try to locate someone who has gone through it and ask him or her about his or her experiences with bankruptcy. Make sure that you carefully consider these options before you make any decision, there could be easier alternative methods for debt relief.

Consumers Don’t Get the Cloud, Even When Already Using It

Cloud services�storage of customer information, data, documents, and media such as movies, music, and games on servers maintained by companies rather than on personal memory devices like hard drives�are hot business in 2011. At least, that appears to be the case.

Amazon (NASDAQ:AMZN) launched its Cloud Drive music service and Cloud Player playlist manager back in March. Dell�(NASDAQ:DELL) and Hewlett-Packard (NASDAQ:HPQ) are banking on cloud storage�and computing services�to compensate for falling consumer PC sales. Microsoft (NASDAQ:MSFT) is trying to transition its $20 billion Office software business into its cloud counterpart, Office 365. And Apple (NASDAQ:AAPL) will usher in the age of iCloud with its launch of the iPhone 5 this fall. Gartner expects cloud services to generate close to $149 billion in revenue by 2014. Big business indeed.

There’s a curious angle to all this, though: Many consumers don’t know what “cloud computing” is or why they should spend money on it.

A new report from research firm NPD Group, reprinted�by Apple Insider, showed that almost 80% of consumers are unfamiliar with the term cloud computing. That’s a discouraging statistic for consumer-centric companies like Microsoft, Amazon, and Apple, which feature the word cloud prominently in the branding of their online services. It would appear, then, that branding is one of the biggest hurdles these companies will have to overcome as they try to get people to embrace their new services.

The reality, however, is that even though close to 80% of consumers don’t understand cloud computing, nearly as many already use cloud services. NPD vice president Stephen Baker explained that consumers can be broken into two groups, “cloud savvy” and “non-savvy,” and that usage of cloud services between the two differs slightly in some cases, more so in others. Of those respondents who know what cloud computing is, between 40% and 50% use it for video and photo sharing, while around 30% of those who don’t understand the term use the services for those same purposes. About 70% of those “non-savvy” consumers use cloud-based email services like Google‘s (NASDAQ:GOOG) Gmail, though, and 40% of them use tax preparation services like Intuit‘s (NASDAQ:INTU) Web-based TurboTax.

It’s those tax preparation services that may hold the key to making new and future cloud services successful. “The consumer’s knowledge and sophistication matter little in terms of how much they use tax prep services,� Baker noted. �Additionally, it is the only type of cloud-based application consumers have shown a willingness to pay for.”

Translation: Apple, Amazon, and the rest need to stop focusing on the word cloud and start convincing consumers that new services like media storage are exceedingly simple to use, and that the convenience they provide is worth paying for.

If any company is capable of nailing that strategy down, it’s Apple. The company has made its current $76 billion fortune by selling products that are, for lack of a better term, idiot proof. It will be up to Apple to make its iCloud services as transparent and convenient as possible to win consumer dollars. Everyone else�from Amazon to Dell�needs to strike the same balance, or they�ll miss out on their piece of the expected $149 billion pie.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello�and�become a fan of InvestorPlace on Facebook.


Wednesday, December 12, 2012

Tax Reporting For Mexican Real Estate Held In Fideicomisos

Anyone who has “bought” property in Mexico near its borders or near the water is familiar with the concept of the fideicomisos. Fideicomisos are trust arrangements with Mexican banks, where the banks holds title to a property on behalf of a foreign buyer. Since foreigners can’t legally own property in these restricted zones, fideicomisos offer home buyers a way around this restriction. Paying taxes on these properties, however, can be complicated in the U.S., and the amount paid depends on the owner’s ability to differentiate that property as a real estate fideicomiso, and not a trust. If successfully navigated, the tax burden can be minimized by a considerable amount without fear of losing title to the property or breaking the law. For more on this continue reading the following article from JDSupra.

A Rude Awakening

One Sunday in late February 2012, my wife walks into the home office and points me to a tax attorney’s website about fideicomisos, foreign trusts, and Form 3520 / 3520-A—and ruins my whole summer.

A few years back, we bought a condo in Mexico. A Notaria Publica caused a Mexican bank to hold our property title “in trust” so that we could not petition like Texas settlers for the USA to annex beautiful Banderas Bay. I was perfectly happy with this limited understanding until that morning when I became suddenly aware of the possibility that the IRS could seize 35% of our Mexico paradise in penalties for never filing 3520[-A]s (since 2007).

The problem stems from this: only a Mexican citizen or a business controlled by Mexican citizens is allowed by Mexico’s constitution to directly own real estate in the so-called restricted zones, within 50 km of coastline or 100 km of a national border. So, to allow non-Mexicans to invest in these desirable zones, a legal arrangement known as a real estate fideicomiso (or trust, in English) was developed in the 1970s. It is a contract between an authorized Mexican bank (fiduciary or trustee) that holds legal title to the real estate, a (beneficial) owner of the real estate, and a grantor that transfers legal title to the trustee in exchange for fair market value paid by the new “owner.” Is this really a trust for which foreign-trust reporting is required?

I briefly explain below why I have respectfully informed the IRS that I will not burden them with Forms 3520 and 3520-A in the future, and why I will not seek a Private Letter Ruling granting me permission not to file (for a mere $7,000 plus in IRS and attorney fees). Obviously, I’m in no position to advise you; I’m simply sharing my own experience and reasoning.  The Firm Encourages . . . Fees

For the past decade, a number of U.S. attorneys and law firms have advised that U.S. owners of real estate fideicomisos are subject to foreign trust reporting requirements and must file annual Forms 3520 and 3520-A. Penalty warnings are softened by assurance that the attorney or firm may be able to reduce penalties already “owed” for prior noncompliance.

In March, we contacted several attorneys who advertise expertise in foreign trust reporting for fideicomiso owners. One offered an initial half-hour consultation for $300. Another offered to fill out our forms for $500 each, or $5,000 for the ten 3520[-A] forms that were due in mid-April. We declined.

As I waded through Forms 3520, 3520-A, and related websites during the summer, I felt some of the resentments expressed by other real estate fideicomiso owners on websites and blogs:

  • I doubted the IRS “paperwork reduction” initiative: to think that I could be severely penalized for not manually copying and pasting property improvements and rental-based depreciation from my TurboTax-generated 1040 Schedule E into Form 3520-A and filing it separately!
  • I wondered whether foreign trust reporting requirements might be doing more to depress restricted-zone real estate values than the occasional headless body. I envied my U.S. friend with real estate a few miles inland, who paid half what I paid for his fee-simple title and has no reporting burden other than Form 1040.
  • Reading this comment on a CPA blog,

The IRS is wrong. No reporting is required for being a trust beneficiary . . .. But, for us CPA’s this is one more opportunity for more income. We really do love the IRS. So, I say file the form and make some more money.

I even wondered (along with several website commenters) whether the IRS might be part of a Mafia-like protection racket with attorneys and CPAs on the street.

The Sphinx

In the wee hours of October 15, I had an epiphany that would cause me to realize that the IRS is not the mastermind behind a grand fee-generating conspiracy after all. No, it is a Sphinx—posing a riddle to all who dare venture into foreign-trust filings.

I was almost done completing the forms. There remained only one “minor” 3520-A requirement:

Attach an explanation of the facts and law (including the section of the Internal Revenue Code) that establishes that the foreign trust (or portion of the foreign trust) is treated for U.S. tax principles as owned by the U.S. person.

In other words, prove that you have any business filing these forms, or you shall be devoured by unnecessary paperwork and terrifying penalty notices for imperfect or late filings.

Solving this riddle should have been my first step, not my very last. Form 3520[-A] Instructions (and documents cited therein) were unhelpful: a foreign trust is any trust other than a domestic trust; a domestic trust is any trust if a U.S. court can supervise it and yada yada yada.

What on Earth is any trust (for U.S. federal tax purposes)? I Google “IRS trust definition” to find Reg. 301.7701-4(a). While that definition tells me what arrangements are trusts, I need a more definitive statement of what is not a trust.

Definitions such as this are clarified by Revenue Rulings. I Google “301.7701-4 revenue ruling” to find Rev. Rul. 92-105, 11/19/92, whose holding concludes by clearly defining what is not a trust:

This revenue ruling also applies to an interest in a similar [trust-like] arrangement created under the laws of any state, pursuant to which (1) the trustee has title to real property, (2) the beneficiary (or a designee of the beneficiary) has the exclusive right to direct or control the trustee in dealing with the title to the property, and (3) the beneficiary has the exclusive control of the management of the property, the exclusive right to the earnings and proceeds from the property, and the obligation to pay any taxes and liabilities relating to the property.

If there is any more direct and concise argument that real estate fideicomisos are not trusts, I do not know where or what is. It’s burdensome enough for those Mexican banks to store our fideicomiso instruments (contract photocopies) for only $500/year. These trust instruments are quite careful to assert points (1), (2), and (3) of the Revenue Ruling, thereby relieving the trustee of duties toward, or liabilities from, us.

On this basis I filed my 3520[-A] package with the required attachment - citing 301.7701-4(a) and Rev. Rul. 92-105 to argue that our real estate fideicomiso is not a trust and we were never required to file!

Ice Cream for Me

Apparently my midnight Sphinx-epiphany and web searches had subconscious guidance, Amy Jetel’s redacted Private Letter Ruling in favor of a client (PLR 201245003, While writing this article, I discovered that I had retrieved that ruling in a web search, attached it to an October 4 email and forgotten about it (preoccupied with unrelated work). I must have read it before “solving” the Sphinx’s riddle on October 15. Thus convicted of midnight plagiarism, I seize the proverbial cone and smash it against my forehead.

Jetel’s discussion of this PLR appears in the November issue of Trusts & Estates Magazine (Fideicomisos: Clarity at Last?), concluding with the observation that, while PLRs cannot be cited as precedent, her fellow attorneys may apply 301.7701-4(a) and Rev. Rul. 92-105 to their clients’ cases and achieve the same result.

In her April 2009 Trusts & Estates article (“What’s a Fideicomiso?”, www., Jetel argues that even if your fideicomiso is a trust, the foreign-trust reporting requirements are subject to “fair market value” exceptions that apply to obviate filing Forms 3520 and 3520-A. Taken together, these two articles nicely cover the issues.

Ice Cream for All?

The Sphinx-epiphany leaves me with a nagging observation that, while valid, may be controversial:

No Form 3520-A has ever been completely and correctly filed for a real estate fideicomiso.

If complete, then a required attachment contains an argument that the real estate fideicomiso is a trust. However, no such argument can be correct because its conclusion is false by Rev. Rul. 92-105.

The Sphinx’s riddle has literally instructed us all these years to refrain from inundating her with inappropriate paperwork, yet for reasons best left for the reader to supply, we persisted in doing so! For this, we all deserve a face-full of ice cream.  After the Party

I have apologized to the Sphinx and promised to refrain from filing 3520[-A]s in the future. I have exonerated her for not issuing redundant Revenue Rulings, arguing that Rev. Rul. 92-105 has been perfectly adequate since 1992 and no more PLRs on this subject are necessary.

The PLR for Amy Jetel’s pioneering client provided useful guidance on how to frame my follow-up argument for IRS. This argument is based on a certified English translation of our fideicomiso instrument - a good investment in view of my limited Spanish and the fact that I’m wagering a good part of my condo’s gross value on it. You may find more economical ways to assure yourself (and the IRS if necessary) that yours is a real estate fideicomiso and not a trust for U.S. federal tax purposes.

I have also responded to Proposed Collection; Comment Request for Form 3520-A in the Federal Register, recommending that the Instructions cite Rev. Rul. 92-105 specifically.

Recently, I replied to our March attorney contacts with two questions “to help me evaluate” their offers:

  • Where does the IRC define "trust" (certainly not 3520[-A] or any document cited therein)?
  • Are there any relevant Revenue Rulings that might have bearing on whether my simple fideicomiso, created by [grantor] purely for the purpose of having [trustee] hold legal title to my restricted-zone property, is in fact a trust for U.S. federal tax purposes?
Neither attorney mentioned 301.7701-4(a) or acknowledged existence of any revenue ruling that might be relevant. How could they possibly serve my interests? Conclusions

The Sphinx holds you, dear reader, firmly in her paperwork-reduction talons:

Under penalties of perjury, I declare that I have examined this return, including any accompanying reports, schedules, or statements, and to the best of my knowledge and belief, it is true, correct,
and complete.

Sign that 3520[-A] for a real estate fideicomiso - and weep.

No cognizant attorney, having verified that yours is in fact a real estate fideicomiso, can lawfully advise you to file Forms 3520[-A] or file on your behalf: better to offer assistance in verification, obtaining retractions of penalty notices mistakenly issued, and convincing the IRS that previous 3520[-A] submissions were erroneous and should be discontinued.

Some attorneys do put the interests of prospective and actual clients first. Others can change, given a few good examples.

ACKNOWLEDGEMENT. I wish to thank Amy Jetel for helpful editorial guidance, and for not declaring me legally insane. Any errors are entirely my own.

Is the Fed Model Dead?

In the 1990s (boy, does that seem a long time ago!), a model for evaluating the stock market and determining whether it was over or under priced became popular. It was called the "Fed Model" (I think Ed Yardeni, a prominent market strategist, came up with the name), and it involved comparing the earnings yield of a stock index with the yield on 10 year treasuries. You haven't heard much about it lately, and I think that the reason is that it would produce results which would be widely viewed as absurd.

For example, Deutsche Bank has predicted that QE will drive the 10 year treasury rate to 2%. Under the Fed Model, this would be consistent with an earnings yield of 2% or a PE of 50. Taking Barron's recent projection of 2011 Dow earnings ($932) and multiplying by 50 produces a predicted index price of 46,600. I do not believe that there is anyone not under the influence of a controlled substance who seriously thinks we will reach that level in the foreseeable future, if ever.

The Fed Model drew a number of critics - some proposed that a rate of return on inflation indexed bonds be used instead. Bear Stearns (remember them?) had a formula using predicted inflation and the spread between treasuries and corporate bonds(I forget which rating they used) to capture risk aversion. One group of economists argued that interest rates were totally irrelevant to stock market valuation because, while under discounted earnings stream or dividend stream analysis, low interest rates tend to increase valuations because a lower discount rate is applied, this factor is completely offset because low interest rates also mean that the expected level of nominal earnings and nominal dividends are decreased proportionately so that the valuation stays the same regardless of prevailing interest rates(I have oversimplified the argument a bit, but I believe I have captured its essence).

It's intuitively hard to accept the notion that interest rates are completely irrelevant to stock market valuation. First of all, dividend paying stocks are an alternative to bonds and become more attractive as bond yields decline. Critics would argue that dividends are higher than interest payments because of an expectation that dividends will be reduced. But this is somewhat hard to accept, especially with respect to electric utility stocks (the Dow Utility Index dividends continued to increase - although very slowly - through the recent financial crisis) and recession-resistant stocks like Procter&Gamble (PG), Johnson&Johnson (JNJ), Coke (KO), WalMart (WMT), McDonald's (MCD) etc.

It is also the case that low interest rates on corporate debt create the opportunity for stock/bond arbitrage as corporations can borrow money and use the funds to buy back their own stock. This seems to be occurring now at an increasing rate. In this regard, it should be noted that a corporation will increase its per share earnings as long as the after tax interest rate on the bonds is less than the earnings yield on its stock. Thus, a company which borrows funds at an after tax cost of 2% (not uncommon today) will increase its per share earnings as long as it pays a price for its own stock which is below a PE of 50. The lower the PE, the bigger the increase in per share earnings created by the buy back. A similar analysis can be done of acquisitions for cash; as long as the earnings yield of the acquired firm is above the interest rate on the borrowed funds, the acquisition will increase net earnings. It should be noted that the viability of these two mechanisms for closing the gap between interest rates and earnings yields depends not upon Treasury interest rates but upon the interest rates on corporate debt.

This has led me to a few conclusions. I think that the yields on corporate debt may be more relevant to stock prices. Think of late 2008, Treasury yields were very low, but corporate debt instruments were enormously discounted as yield spreads reached record levels. Equity valuations were very low and that is not surprising. Risk aversion was enormous and it affected both equities and corporate bonds. The equity market improved as yield spreads declined. Looking at the situation today, yield spreads for high yield bonds are still relatively high although they have declined enormously from the levels of early 2009. The high yield spreads reflect investor risk aversion, and this would be expected to depress stock market valuations although not as seriously as in late 2008.

What has surprised me is that the assets which appear to be most overpriced are the safest bonds (treasuries and AAA corporate) and the riskiest equities (tech startups, highly leveraged financial institutions, etc.). This has led me to favor the safer stocks (consumer staples and electric uitlities) which should be trading at a substantial premium in this risk averse environment and the riskiest bonds which are underpriced relative to the overall debt market.

The investment community really needs some intelligent analysis of this stock/bond valuation issue. It is obvious that the Fed Model is obsolete, but I also believe that interest rates have some relevance to stock prices. Hopefully, some smart academics will explain all of this to the rest of us while we try to navigate these treacherous waters.

Author's Disclosure: Long JNJ, KO, PG, WMT, MCD, high yield bonds

Meet the Cash Kings of Beverages

As an investor, it pays to follow the cash. If you figure out how a company moves its money, you might eventually find some of that cash flowing into your pockets.

In this series, we'll highlight four big dogs in an industry, and compare their "cash king margins" over time, trying to determine which has the greatest likelihood of putting cash back in your pocket. After all, a company can pay dividends and buy back stock only after it's actually received cash -- not just when it books those accounting figments known as "profits."

The cash king margin
Looking at a company's cash flow statement can help you determine whether its free cash flow actually backs up its reported profit. Companies that can create 10% or more free cash flow from their revenue can be powerful compounding machines for your portfolio.

To find the cash king margin, divide the free cash flow from the cash flow statement by sales:

cash king margin = free cash flow / sales

Let's take McDonald's as an example. In the four quarters ending in June, the restaurateur generated $6.87 billion in operating cash flow. It invested about $2.44 billion in property, plant, and equipment. To calculate free cash flow, subtract McDonald's investment ($2.44 billion) from its operating cash flow ($6.87 billion). That leaves us with $4.43 billion in free cash flow, which the company can save for future expenditures or distribute to shareholders.

Taking McDonald's sales of $25.5 billion over the same period, we can figure that the company has a cash king margin of about 17% -- a nice high number. In other words, for every dollar of sales, McDonald's produces $0.17 in free cash.

Ideally, we'd like to see the cash king margin top 10%. The best blue chips can notch numbers greater than 20%, making them true cash dynamos. But some businesses, including many types of retailing, just can't sustain such margins.

We're also looking for companies that can consistently increase their margins over time, which indicates that their competitive position is improving. Erratic swings in margins could signal a deteriorating business, or perhaps some financial skullduggery; you'll have to dig deeper to discover the reason.

Three companies
Today, let's look at Coca-Cola (NYSE: KO  ) and three of its peers:

Company Cash King Margin (TTM) 1 Year Ago 3 Years Ago 5 Years Ago
Coca-Cola 13.7% 22.4% 16.9% 19.2%
Hansen Natural (Nasdaq: HANS  ) 16.5% 14.8% 17.2% 15.7%
PepsiCo (NYSE: PEP  ) 7.7% 10.4% 9.0% 10.1%
Cott (NYSE: COT  ) 3.9% 6.0% 0.2% 4.1%

Source: S&P Capital IQ.

Coca-Cola and Hansen Natural both meet our 10% threshold for attractiveness, but Coca-Cola's cash king margins have declined from five years ago, while Hansen's margins have increased slightly. PepsiCo and Cott both have margins below 10%, and both also have lower cash king margins than they did five years ago. Compare these returns to the blue chips of software and biotech, to get some context.

The cash king margin can help you find highly profitable businesses, but it should only be the start of your search. The ratio does have its limits, especially for fast-growing small businesses. Many such companies reinvest all of their cash flow into growing the business, leaving them little or no free cash -- but that doesn't necessarily make them poor investments. You'll need to look closer to determine exactly how a company is using its cash.

Still, if you can cut through the earnings headlines to follow the cash instead, you might be on the path toward seriously great investments.

Want to read more about Coca-Cola? Add it to My Watchlist, which will find all of our Foolish analysis on this stock.

  • Add PepsiCo to My Watchlist.
  • Add Coca-Cola to My Watchlist.
  • Add Hansen�Natural to My Watchlist.
  • Add Cott to My Watchlist.

Insanely Profitable Marketing: Youtube Marketing Service

Youtube is probably the hottest web sites over the internet with it obtaining thousands and thousands of hits each single week. It is consequently a very good site for a organization to try some marketing of their goods or companies and there are actually organizations these days who can assist you by offering a Youtube marketing service.

The important thing to getting success from this web page is in getting as numerous individuals to see your video clip as you can together with the ideal ones heading viral to various degrees. Going viral doesn’t really need to necessarily mean you would like thousands and thousands of views but as an alternative it means you create quite a few continuous views devoid of undertaking any marketing for them personally.

Companies that specialize in this service use many procedures to increase the views of one’s video clip using quite a few sources. They produce backlinks in different web sites for individuals who shall have a true curiosity in viewing it are likely to be much more inclined to click the hyperlink and listen to what you have to say.

Marketing and advertising authorities feel that video clip marketing is far better at producing product sales or curiosity than other varieties. Folks listen and absorb a increased offer of information on this way so you can also get suggestions through the marketing service business as to how ideal make your video clip.

This part is just as vital because the marketing as if your video clip shouldn’t be excellent enough then no volume of marketing on earth shall get individuals to sit and see it. You ought to consequently listen for the suggestions given to you as they function really hard in getting the hits to suit your needs to then let all of it down having a bad video clip.

Your videos can create you a huge raise in site visitors for your web page and this variety is determined by how numerous views you have bought. The organizations typically provide a assure that for those who asked for 20 000 views you then shall get 20 000 views. Having said that, just before you employ their companies you ought to talk to them about the views plus the duration of time you need the marketing to final.

Just as social media web pages like Facebook or Myspace have become vital for businesses in helping them to create new shoppers Youtube is the specific similar. You ought to use a Youtube marketing service as they’re authorities in creating probably the most out of it and it can be the big difference involving a couple of hundred and a handful of hundred thousand views in only a issue of weeks.

6 Stocks Rising on Unusual Volume

Professional traders running mutual funds and hedge funds don't just look at a stock's price moves; they also track big changes in volume activity. Many times when above average volume moves into equity it precedes a large spike in volatility.

Major moves in volume can signal unusual activity, such as insider buying or selling -- or buying or selling by "superinvestors."

See if (CVV) is in our portfolio

>>5 Rocket Stocks With Upside This WeekUnusual volume can also be a major signal that hedge funds and momentum traders are piling into a stock ahead of a catalyst. These types of traders like to get in well before a large spike, so it's always a smart move to monitor unusual volume. That said, remember to combine trend and price action with unusual volume. Put them all together to help you decipher the next big trend for any stock. Let's take a look at a several stocks rising on unusual volume today. They are all recording volume in midday trading that is already at least 50% above their average trading volume for a full day.

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CVD Equipment Content on this page requires a newer version of Adobe Flash Player.

CVD Equipment(CVV) designs, develops and manufactures customized equipment and process solutions used to develop and manufacture solar, nano and advanced electronic components, materials and coatings for research and industrial applications. The stock is trading up 7.9% at $17.00 in recent trading.

Today's Volume: 647,000Average Volume: 158,092Volume % Change: 800%This stock is spiking sharply to the upside today after the company announced record revenue and income for the three and nine months ending on September 30, 2011. From a technical standpoint, this stock is quickly approaching a major breakout if it can manage to sustain a move and close above some past overhead resistance at $17.50 on high volume. The stock hit $17.84 today, and volume is extremely strong, but shares have since traded back below $17.50 at last check. Market players should now watch for the stock to close above $17.50 and $17.84 in the coming days or weeks to signal that the stock wants to re-test its September high at $19.76. Any failure to get back above those levels would have me avoiding this stock, or looking for short setups on a move below its 50-day moving average of $15.54.

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Woodward(WWD) is a designer, manufacturer and service provider of energy control and optimization solutions. The stock is trading up 7.7% at $38.50 in recent trading.

Today's Volume: 642,000Average Volume: 335,803Volume % Change: 217%This stock is spiking strong today after the company said its fourth quarter profit jumped 28% as revenue from its aerospace and energy businesses both climbed higher. >>20 Highest-Yielding Energy StocksFrom a technical standpoint, this stock is triggering a big breakout on high-volume above some past overhead resistance levels at $36.31 and $37.12. Traders should now watch for a sustained move and close above those levels to signal this stock wants to trend much higher. The next significant overhead resistance level will come into play at $39.35. If the stock can take out $39.35 on high volume in the near future, then look for this stock to trend towards its all-time high near $50.

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Clean Energy Fuels(CLNE), together with its wholly owned subsidiaries, is engaged in the business of selling natural gas fueling solutions to its customers, primarily in the U.S. and Canada. The stock is trading up 3.5% at $12.15 in recent trading.

Today's Volume: 1,035,000Average Volume: 1,180,570Volume % Change: 91%From a technical standpoint, this stock is starting to trade back above its 50-day moving average today on solid volume. Market players should look to get long this stock off any weakness as long as shares remain above the 50-day at the close. Avoid this trade if shares drop back below the 50-day in the near-term. >>Does Technical Trading Really Work?If you get long, add to any position once it then moves back above the 200-day moving average of $13.53 on high volume. Look for volume that's tracking in close to or above its three-month average action of 1,180,570 shares.

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Focus Media(FMCN) operates an interactive digital media network. The firm offers interactive digital media platforms aimed at Chinese consumers. This stock is trading up 4.6% at $24.92 in recent trading.

Today's Volume: 2,500,000Average Volume: 1,775,520Volume % Change: 53%This stock trending higher today on solid volume in front of its earnings report, which is scheduled for Thursday. >>5 Stocks Set to Soar off Bullish EarningsFrom a technical standpoint, this stock is currently trading below both its 50-day and 200-day moving averages, which is bearish. Traders should to play this stock for a post-earnings trade if shares can manage to breakout above some past overhead resistance levels. I would wait until after Focus Media reports earnings, and then look for long trades on a high-volume breakout above $28 to $29.14 (200-day). Look for volume that's tracking in close to or above its three-month average action of 1,775,520 shares. I would get short this stock after earnings if it drops below some previous support at $21 on high-volume.

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21Vianet Group(VNET) is a carrier-neutral Internet data center services provider in China. The stock is trading up 7.8% at $10 in recent trading

Today's Volume: 1,317,000Average Volume: 227,854Volume % Change: 1082%This stock is spiking big today after the company reported a third-quarter net income, reversing a loss, as net revenues more than doubled on a jump in demand for its services. From a technical standpoint, this has been stuck in a massive downtrend for the past couple of months where shares have been making lower highs and lower lows. Off the news today, the stock is now trading close to its 50-day moving average of $10.10. Traders should look to get long this stock if it can manage to close above the 50-day on heavy volume. The volume is already well above the three-month average today, so look to get long if shares can sustain a move and close over that 50-day.

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Colfax(CFX) is a global supplier of a range of fluid handling products, including pumps, fluid handling systems and controls and specialty valves. The stock is trading up 5.3% at $28.71 in recent trading

Today's Volume: 726,000Average Volume: 631,789Volume % Change: 155%This stock is trading higher today after UBS upgraded the stock to buy from neutral. From a technical standpoint, this stock is starting to break out today above some major overhead resistance at $28.75 to $28.76 on decent volume. Market players should now watch for a sustained move and close above $28.76 on high-volume to trigger a potentially a larger move higher. Look for volume at the close that registers well above the three-month average of 631,789 shares. If you see that kind of volume and the stock finishes above those breakout levels, then look for higher prices in the near-term as long as the breakout levels hold. Follow Stockpickr on Twitter and become a fan on Facebook.

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The Unappreciated Awesomeness at Orient-Express Hotels

It takes money to make money. Most investors know that, but with business media so focused on the "how much," very few investors bother to ask, "How fast?"

When judging a company's prospects, how quickly it turns cash outflows into cash inflows can be just as important as how much profit it's booking in the accounting fantasy world we call "earnings." This is one of the first metrics I check when I'm hunting for the market's best stocks. Today, we'll see how it applies to Orient-Express Hotels (NYSE: OEH  ) .

Let's break this down
In this series, we measure how swiftly a company turns cash into goods or services and back into cash. We'll use a quick, relatively foolproof tool known as the cash conversion cycle, or CCC for short.

Why does the CCC matter? The less time it takes a firm to convert outgoing cash into incoming cash, the more powerful and flexible its profit engine is. The less money tied up in inventory and accounts receivable, the more available to grow the company, pay investors, or both.

To calculate the cash conversion cycle, add days inventory outstanding to days sales outstanding, then subtract days payable outstanding. Like golf, the lower your score here, the better. The CCC figure for Orient-Express Hotels for the trailing 12 months is 119.9.

For younger, fast-growth companies, the CCC can give you valuable insight into the sustainability of that growth. A company that's taking longer to make cash may need to tap financing to keep its momentum. For older, mature companies, the CCC can tell you how well the company is managed. Firms that begin to lose control of the CCC may be losing their clout with their suppliers (who might be demanding stricter payment terms) and customers (who might be demanding more generous terms). This can sometimes be an important signal of future distress -- one most investors are likely to miss.

In this series, I'm most interested in comparing a company's CCC to its prior performance. Here's where I believe all investors need to become trend-watchers. Sure, there may be legitimate reasons for an increase in the CCC, but all things being equal, I want to see this number stay steady or move downward over time.

Source: S&P Capital IQ. Dollar amounts in millions. FY = fiscal year. TTM = trailing 12 months.

Because of the seasonality in some businesses, the CCC for the TTM period may not be strictly comparable to the fiscal-year periods shown in the chart. Even the steadiest-looking businesses on an annual basis will experience some quarterly fluctuations in the CCC. To get an understanding of the usual ebb and flow at Orient-Express Hotels, consult the quarterly-period chart below.

Source: S&P Capital IQ. Dollar amounts in millions. FQ = fiscal quarter.

On a 12-month basis, the trend at Orient-Express Hotels looks very good. At 119.9 days, it is 51.0 days better than the five-year average of 170.8 days. The biggest contributor to that improvement was DIO, which improved 40.4 days compared to the five-year average.

Considering the numbers on a quarterly basis, the CCC trend at Orient-Express Hotels looks good. At 123.0 days, it is 10.3 days better than the average of the past eight quarters. With both 12-month and quarterly CCC running better than average, Orient-Express Hotels gets high marks in this cash-conversion checkup.

Though the CCC can take a little work to calculate, it's definitely worth watching every quarter. You'll be better informed about potential problems, and you'll improve your odds of finding the underappreciated home run stocks that provide the market's best returns.

  • Add Orient-Express Hotels to My Watchlist.

Buy Hospitals Ahead of Obamacare Ruling: Citi

Hospital stocks have basically traded flat this year, with five of the seven covered by Citi analyst Gary Taylor in negative territory for the year. But that could change soon.

The Supreme Court is expected to announce its ruling on President Obama’s Affordable Care Act sometime this month, and the “risk/reward looks favorable” for hospital stocks, Taylor argues. Here’s how he figures it:

If the court upholds the entire law, hospital stocks could jump at least 15% on the day of the decision.

If the court says that it is unconstitutional to make people buy health insurance (the “individual mandate”) but upholds the rest of the law, stocks could get a 5% to 10% bump. Taylor sees this as the most likely outcome.

If the court strikes down the entire law, the stocks could fall 5% to 10%, and “trade toward trough EBITDA valuations (low-5 times forward, stock prices about 30% lower) in the throes of the January 2013 fiscal debate.” That, however, would be the “most unlikely outcome,” he writes.

Taylor’s favorite names include Universal Health Services (UHS) and HCA (HCA).

1 Thing Investors Are Missing: New York Community Bancshares

Pinning down what the typical investor knows and doesn't know is easier said than done. On one hand, they're given far too little credit, sometimes even referred to as muppets, by the practitioners of finance. Yet on the other, they're given for too much credit by economists in ivory towers who assume that market participants known everything and act rationally at all times. Needless to say, it seems that reality probably lies somewhere in between.

What investors may not know about NYCB
This brings me to the one thing that I believe investors are most likely to miss about New York Community Bancshares (NYSE: NYCB  ) . When you mention NYCB to someone that follows bank stocks, there are any number of things that would likely come to their mind. The most obvious is its massive 8% dividend yield. I mean, think about it: It's pretty hard to miss a yield like that when 3% is considered generous nowadays.

Or how about the fact that while NYCB is commonly referred to as a regional bank, virtually its entire portfolio of loans is collateralized by rent-controlled, multifamily apartment buildings situated in one of New York City's five boroughs: Manhattan, Brooklyn, the Bronx, Queens, and Staten Island. Not only is this unique, but it's also earned the bank's CEO Joseph Ficalora unwelcome attention. "He's a banker to the slumlords" said an attorney at Legal Services NYC-Bronx.

Or consider the fact that it was one of the few large lenders to both refuse TARP funds and steer almost completely clear of the subprime siren song that preceded the financial crisis. According to Ficalora, NYCB turned down $600 million in TARP funds in 2009 and instead raised $1 billion in capital from private investors. Despite the financial crisis, moreover, it never once reported an annual loss on its income statement over the last few years. And through a series of shrewd acquisitions, NYCB has grown its balance sheet by nearly 50% since 2007.

But like I said above, while the last two points may be a bit more nuanced than NYCB's blaringly obvious dividend yield, they are nevertheless not unknown aspects of the New York City-based lender. For something that's less commonly appreciated, but nevertheless massively important, I was thus forced to delve into the depths of the lender's financial statements. And what I found could very well dictate the bank's storyline over the foreseeable future.

Before getting to that, however, let's briefly revisit the nature of banking itself. Fundamentally, a bank is nothing more than a highly leveraged investment fund not unlike, say, a hedge fund. The principal differences being that banks are highly regulated, while hedge funds are not, and that banks have access to ridiculously cheap capital in the form of deposits, while hedge funds must borrow at higher rates from wholesale creditors. Consequently, a bank that's burdened by the former but doesn't fully benefit from the latter has considerable room to grow its bottom line. And herein lies the one thing most investors are likely overlooking when it comes to NYCB.

Take a glance at NYCB's most recent balance sheet, and you'll see what I mean. Out of $38.4 billion in liabilities, $24.5 billion are classified as deposits at an average annualized cost during the third quarter of 0.64%, and $13.2 billion are classified as wholesale borrowings at an average annualized cost of 3.78%. As you can see, the latter are six times more expensive than the former!

There are two ways to appreciate the significance of this. First, NYCB's net interest margin of 3.23% is markedly lower than many of its competitors. Comparable figures at US Bank (NYSE: USB  ) , M&T Bank (NYSE: MTB  ) , and BB&T (NYSE: BBT  ) come in at 3.59%, 3.77%, and 3.94%, respectively. And second, on a strictly dollars-and-cents basis, the extra roughly 3% that NYCB pays in interest expense on that $13.2 billion equates to approximately $100 million in forgone net interest income every quarter.

To bring the story full circle, in turn, the one thing investors are likely to miss about NYCB is its need to increase its deposit base quickly and in a major way. By doing so, the bank could free up a significant amount of revenue, which could then be passed on to shareholders via even larger dividends.

Want to learn more about NYCB?
Check out this premium research report I just wrote on the popular lender. You can access it instantly simply by clicking here now.

Argentina takeover threatens energy boom

(NEW YORK) CNNMoney -- Argentina's government announced a brazen takeover of the country's largest energy company this week, potentially quashing a domestic shale gas boom.

Argentine president Cristina Fernández de Kirchner said Monday that she was sending a bill to the country's legislature authorizing the seizure of a controlling stake in energy firm YPF (YPF), the majority shareholder of which is Spain's Repsol (REPYY).

The move appears driven in part by a belief that the company could be producing more fuel. That would reduce the country's need for energy imports and the costly subsidies that help finance them.

But analysts say the takeover will do little to stimulate Argentina's energy production. Instead, it will deter investments from private companies with the expertise necessary to tap the country's abundant shale gas resources.

"The government ... is putting this potential production boom at risk through its actions, and is naïve if it believes that it can do a better job of reducing the country's fuel import bill than the private sector," analysts from IHS Global Insight said in a research note this week.

Argentina's Repsol move sets off a global ripple effect

Argentina has the third-largest shale gas reserves in the world, behind only China and the United States, according to the U.S. government's Energy Information Administration. Shale production has been expanding rapidly in the U.S., and the development of such resources could be worth billions of dollars to Argentina.

The extraction of shale gas -- done through a technique called hydraulic fracturing, or fracking -- has proven controversial due to worries about its environmental impacts. Argentina, though, is anxious to develop its reserves and break its dependence on imports.

Repsol has reacted furiously to YPF's seizure, which has also drawn criticism from officials in Spain, the U.S. and the European Union. The company has branded Argentina's move "unlawful" and has vowed to take "all legal measures to preserve the value of its assets."

The move is one of the largest nationalizations in the global energy sector in recent years, reminiscent of Russia's break-up of Yukos Oil nearly a decade ago.

Energy firms including Chevron (CVX, Fortune 500), Total (TOT), Apache (APA, Fortune 500) and Exxon Mobil (XOM, Fortune 500) have a presence in Argentina, with most current production focused on conventional oil and gas. Shale exploration efforts are still in their infancy, although shale "is definitely the big attraction" for foreign firms in the country, said Juliette Kerr, a senior research analyst at IHS, but

The government has tried to accelerate shale gas production by allowing companies to sell it domestically above regular set prices. With the seizure of YPF, however, Buenos Aires may have taken a step backwards in this effort.

"This will raise serious doubts about the rule of law and contract sanctity," Eurasia Group Latin America analyst Daniel Kerner said in a research note.

"[T]his will make it hard for Argentina to attract needed investment to develop its promising unconventional resources."

Exxon's big bet on shale gas

So far, YPF's foreign competitors have offered little public reaction to the takeover.

Apache spokesman Bill Mintz said his company doesn't foresee "a major impact for our operations" as a result of the move. He noted that YPF has a "unique" relationship with the Argentine government, having previously been state-owned before being privatized in 1993.

A Chevron spokesman said the company "continues to work in partnership with the Republic of Argentina to develop the country's resources," declining to comment further.

Exxon declined to comment, while Total did not return requests for comment.

The Argentine government has given no indication that it will move beyond the YPF takeover to a sweeping nationalization of the energy sector, as governments in Bolivia and Venezuela have done. But even so, those in the industry must be wondering whether this is just the beginning of a slippery slope, said Jose Valera, a partner in the energy practice group at Houston law firm Mayer Brown.

"What this tells other companies in the country is that they could be next," Valera said. "This doesn't bode well for the growth of the oil and gas industry in Argentina."

CNN Wire Staff contributed to this report. 

What is the VIX Signaling?


If you like to trade volatility, then you must have absolutely hated the past few weeks. As of Wednesday’s close, the CBOE Volatility Index (VIX) had dropped 15 of the last 16 trading sessions.

That’s the worst performance since the bull began in March 2009, according to The Pragmatic Capitalist. And, honestly, it’s hard to imagine there are too many times in any market where we went 16 for 16.

In percentage terms, the VIX has dropped about 30% in a mere three weeks — not a pretty picture.

Now, the obvious conclusion is that we got too complacent, too fast, which, on a contrary basis, is quite bearish. But, alas, we have many caveats.

Extreme complacency does not provide as good a market timing signal as its evil cousin, extreme fear. While fear tends to resolve in a crescendo, complacency can just linger on for what seems like forever.

And it’s unclear whether this particular options complacency is unjustified.

The VIX proxies the implied volatility of a hypothetical S&P 500 option with 30 days until expiration. Implied volatility represents the market’s consensus estimate for the realized volatility of the underlying instrument itself, the S&P 500 (SPX), going forward.

Ten-day realized volatility in the SPX is now about 12. The VIX typically carries a 3- to 4-point premium to realized volatility, so a VIX around 19 is actually not cheap by this metric.

Of course, 10-day realized volatility looks backward, and 12 is on the low end of this year’s range. But, by the same token, it’s truly representative of the pace of the market lately.

Finally, we’re using a bit of selective statistical analysis just looking at the VIX drop from 26 on Feb. 8. The VIX didn’t go from fair to cheap; it went from high to fair.

Remember back in January that the VIX lifted nearly 50% to 27 in two ugly market days. It then drifted back near 20 before popping quickly again to 26.

But for the VIX to sustain in the mid-20s, it needs the volatility of the market itself to pick up. And so far it hasn’t, save for a few random days here and there.

Throw it all together and I really don’t see the VIX signaling much of anything. A closing drop to the mid-18 level or lower would get us 10% below its 10-day moving average, which is somewhat bullish for the VIX and bearish for the market.

But even that indicator works better as a counter-trend. In other words, a VIX 10% above the 10-day simple moving average within an intermediate-term bull move is a decent buy signal, while 10% below the 10-day simple moving average just kind of confirms the bull move we already know we’re in.

If someone were holding a gun to my head, I suppose I’d say that I suspect the VIX is at or close to the low for the expiration cycle. But I don’t believe that necessarily means the market is at or near the top for the cycle.

Tell us what you think here.

Related Articles:

  • Can the VIX Tell You When to Get Long or Short?
  • Predicting Volatility With the VIX
  • Why It’s Vital You Understand the VIX 

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Tuesday, December 11, 2012

What Leggett & Platt Does With Its Cash

In the quest to find great investments, most investors focus on earnings to gauge a company's financial strength. This is a good start, but earnings can be misleading and incomplete. To get a clearer understanding of a company's ability to earn money and reward you, the shareholder, it's often better to focus on cash flow. In this series, we tear apart a company's cash flow statement to see how much money is truly being earned and, more importantly, what management is doing with that cash.

Step on up, Leggett & Platt (NYSE: LEG  ) .

The first step in analyzing cash flow is to look at net income. Leggett & Platt's net income over the last five years has been impressive:






Normalized Net Income $150 million $158 million $136 million $138 million $190 million

Source: S&P Capital IQ. *12 months ended Sept. 30.

Next, we add back in a few non-cash expenses, like the depreciation of assets, and adjust net income for changes in inventory, accounts receivable, and accounts payable -- changes in cash levels that reflect a company either paying its bills, or being paid by customers. This yields a figure called "cash from operating activities" -- the amount of cash a company generates from doing everyday business.

From there, we subtract capital expenditures, or the amount a company spends acquiring or fixing physical assets. This yields one version of a figure called "free cash flow," or the true amount of cash a company has left over for its investors after doing business:






Free Cash Flow $280 million $295 million $482 million $318 million $465 million

Source: S&P Capital IQ. *12 months ended Sept. 30.

Now we know how much cash Leggett & Platt is really pulling in each year. Next question: What is it doing with that cash?

There are two ways a company can use free cash flow to directly reward shareholders: dividends and share repurchases. Cash not returned to shareholders can be stashed in the bank, invested in other companies, or used to pay off debt.

Here's how much Leggett & Platt has returned to shareholders in recent years:






Dividends $157 million $155 million $157 million $165 million $125 million
Share Repurchases $255 million $130 million $192 million $297 million $237 million
Total Returned to Shareholders $412 million $285 million $349 million $462 million $362 million

Source: S&P Capital IQ. *12 months ended Sept. 30.

As you can see, the company has repurchased a decent amount of its own stock. That's caused shares outstanding to fall:






Shares Outstanding (millions) 147 151 159 168 179

Source: S&P Capital IQ. *12 months ended Sept. 30.

Now, companies tend to be fairly poor at repurchasing their own shares, buying feverishly when shares are expensive and backing away when they're cheap. Does Leggett & Platt fall into this trap? Let's take a look:

Source: S&P Capital IQ.

This is encouraging. While there is quarter-to-quarter volatility, Leggett & Platt's buybacks are fairly consistent, regardless of share price. Very few companies can say the same these days. Given what looks like reasonable valuations in relation to earnings and cash flow, these buybacks have likely been a good deal for shareholders.

Finally, I like to look at how dividends have added to total shareholder returns:

Source: S&P Capital IQ.

Shares returned 20% over the last five years, which drops to -7% without dividends -- a nice boost to top off already decent performance.

To gauge how well a company is doing, keep an eye on the cash. How much a company earns is not as important as how much cash is actually coming in the door, and how much cash is coming in the door isn't as important as what management actually does with that cash. Remember, you, the shareholder, own the company. Are you happy with the way management has used Leggett & Platt's cash? Sound off in the comment section below.

Add Leggett & Platt to�My Watchlist.